Gold has muted response to slowing US economy

May 29, 2015 - 8:18 PM GMT
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Gold wobbled in a tight range on Friday as a weak US GDP reading was already priced into the market. 

Gold for August delivery on the Comex division of the New York Mercantile Exchange increased $1.00 or 0.1 percent to close at $1,189.8 per ounce. Trade ranged from $1,185.7 to $1,193.3

Gold was in consolidation mode this week as prices plummeted Tuesday by $17.10 after the holiday weekend, before closing higher yesterday and today.

“The gold market continues to be rather uninspiring as we remain within what can only be described as no man’s land, a clear break below $1,175 or above $1,225 is required before a clear direction is to be determined,” Triland Metals said.

The second estimate of US first-quarter GDP came in at -0.7 percent, slightly better than the -0.8 percent forecast but down significantly from 0.2 percent in the first reading. Revised University of Michigan consumer sentiment for May beat estimates at 90.7, but was the lowest reading since November.

Additionally, Chicago PMI for May was at 46.2, much lower than the 53.1 forecast.

The date kept a damper on US equities with the Dow Jones industrial average and S&P were each down 0.7 percent, while the euro was 0.3 percent stronger at $1.0984 against the dollar.

This low GDP reading could make Federal Reserve’s 2015 forecast for 2.5 to 3.0 percent growth difficult to achieve. The members of the Fed’s policy board are locked in what has become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008.

At its last meeting, the Fed removed all calendar references in its forward guidance and said that recent economic weakness might be “transitory” in nature. This means that bank is now entirely dependent on data so a rate increase could happen at any future meeting.

“Unlike 2014, when growth snapped backed after a dismal first quarter as well, the stronger dollar and spending cuts by energy companies remain a drag right now,” Edward Meir, analyst at INTL FCStone, said. “All this puts the Fed in a rather awkward position of going through with rate increases (or at least one) in what are sub-optimal growth conditions, but the central bank really has no choice at this point, but to proceed.”

In other data today, German retail sales at 1.7 percent bettered expectations as did the Spanish flash CPI at -0.2 percent and the Italian preliminary CPI at 0.2 percent, while French consumer spending dropped short at 0.1 percent. Italian GDP at 0.3 percent was the first quarter of growth since the autumn of 2013.

As for other precious metals, Comex silver for July delivery was rose more than three cents to close at $16.701 per ounce. Trade ranged from $16.640 to $16.850.

Platinum futures for July delivery on the Nymex fell $3.20 to $1,113.1 per ounce, while the most-actively traded palladium contract was at $788.10, down $6.70.

(Editing by Tom Jennemann)